The Future of Residential Sales & Marketing: Preparing for July 1st, 2007

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
  • METHODOLOGY
• ANALYSIS
  • There are four external factors that should be considered in preparation for residential market opening
  • The first factor that should be considered is EU Directives and National Legal/Regulatory Frameworks
  • Public Service Obligations may be a significant barrier to entry into power and gas markets
  • The effectiveness of the regulator shapes the power and gas competitive landscape and customer switching/retention rates
  • Business processes must change to incorporate retailer obligations set by the regulator in power and gas markets
  • The second factor that should be considered is Organic Market Growth
  • Corporate targets and market entry decisions must incorporate exogenous market data
  • The third factor that should be considered is Competitive Intensity
  • Detailed competitor profiles allow for specific conclusions to be drawn from other analytical outputs
  • Retail competition can be stifled by lack of access to networks or power generation/gas assets
  • Predatory pricing may emerge as a barrier to new market entry
  • Regulated tariffs facilitate retail switching
  • The fourth factor that should be considered is the Energy Market Environment
  • Understanding wholesale markets and correctly forecasting volatility is a foundation for effective retail competition
  • Active third party intermediaries can deliver large blocks of customers with minimal investment, yet also minimize customer contact and commoditize retail competition
  • Effective market research is key to forecasting the price responsiveness and switching propensity of customers
  • There are six internal firm processes that should be recalibrated in preparation for residential market opening
  • Segmentation and margins modelling is the first internal firm process that should be undertaken in the lead-up to retail market opening
  • A model of margins in the B2C market is necessary to inform and validate segmentation decisions
  • Margins analyses and segmentation decisions must be balanced with an assessment ('reality check') of external factors such as the likelihood of effective competition
  • Product development is the second internal firm process that should be undertaken in the lead-up to retail market opening
  • Successful product development involves mastering four distinct risks. As competition intensifies and the market environment changes, the balance between these risks must be re-calibrated
  • There are four key success factors for product development
  • There are five basic sources of product innovation
  • The first phase of retail competition is often a race for scale/critical mass: but this can have negative implications for successful segmentation, product development and pricing
  • Pricing is the third internal firm process that should be undertaken in the lead-up to retail market opening
  • There is a logical flow to the development of a firm's pricing structure, without which a firm's products, brand and strategy risks degenerating into incoherence in the eyes of customers
  • The high number of possible pricing structures can wrongly result in high level segmentation, product and strategic decisions being driven by pricing decisions
  • Applying market development scenarios to revenue projections is the fourth internal firm process that should be undertaken in the lead-up to retail market opening
  • Selection of distribution channels is the fifth internal firm process that should be undertaken in the lead-up to retail market opening
  • A fundamental distinction between distribution channels is 'in-area' versus 'out-of-area': targeting customers in one's service area versus those of a competitor in its incumbent service area
  • There are 8 general types of distribution channel
  • Effective distribution channel selection takes a realistic view of likely customer losses in the face of new competition and balances this with new approaches
  • Branding and communication planning is the sixth internal firm process that should be undertaken in the lead-up to retail market opening
  • Customer fixation on price mitigates brand importance, but retailers still see branding as increasingly important in a competitive marketplace
  • Successful marketing campaigns match cost effectiveness with the natural advantages of the particular retailer
• APPENDIX
  • Definitions
  • Further reading
  • Ask the analyst
  • List of Figures
    • Figure 1: The first factor that should be considered is EU Directives and National Legal/Regulatory Frameworks
    • Figure 2: There are five main components to the EU Electricity Directive
    • Figure 3: There are three main components to the EU Gas Directive
    • Figure 4: The second factor that should be considered is Organic Market Growth
    • Figure 5: The third factor that should be considered is Competitive Intensity
    • Figure 6: The fourth factor that should be considered is the Energy Market Environment
    • Figure 7: There are six internal firm processes that should be recalibrated in preparation for residential market opening
    • Figure 8: Tariffs may be broken down by metering or pricing characteristics: some examples
    • Figure 9: Tariffs may be broken down by bundled product or user attributes: some examples
    • Figure 10: All distribution channels have unique advantages and disadvantages, with the potential rewards generally being commensurate with related risks
    • Figure 11: All distribution channels have unique advantages and disadvantages, with the potential rewards generally being commensurate with related risks